European Bank Shares Take a Nosedive

On Tuesday, shares of several of the region’s largest financial institutions fell as much as 8 percent as fears about the debt crisis in Europe re-emerged.

After weeks of renewed optimism, particularly after the European Central Bank pumped in more than $1 trillion to prop up local banks, concerns are growing that countries like Spain and Italy will not be able to pay their debts.

Related Links

Mounting questions about those to nations’ abilities to finance their loans are affecting banks because many institutions have been actively buying billions of dollars of state-backed debt.

Spanish banks, for example, increased their holdings of government bonds by 68 billion euros ($89 billion) from November to February. Italian firms bought 54 billion euros ($71 billion) of government securities over the same period.

Banco Santander and BBVA of Spain

CREDITUniCredit and Intesa Sanpaolo of Italy.

And investors continue to fret. The yield on Spanish 10-year bonds, for example, rose to nearly 6 percent on Tuesday despite an announcement from the country’s prime minister, Mariano Rajoy, about an additional 10 billion euros ($13 billion) of budget cuts.

Shares in Banco Santander dropped 3.9 percent on Tuesday, while the stock in BBVA of Spain fell 3.6 percent.

The effect on European banking stocks was worsened by the long Easter weekend for most European countries, when the Continent’s largest exchanges were closed on both Friday and Monday.

That meant Tuesday was the first day when European traders could respond to the worse-than-expected job numbers announced in the United States on Friday.

The pain was most acute in Italy. Shares in UniCredit, the country’s largest bank, fell 8.1 percent, while the stock of its local rival Intesa Sanpaolo slipped 7.9 percent.

The declines came after local media reports said the Italian government would cut its growth forecast for 2012. Italy is expected to grow by a mere 0.4 percent, according to statistics from the European Union.

The falling share prices, however, were not limited to debt-laden Southern European countries. Slow growth is forecast across Europe, which is expected to hurt some of region’s largest banks.

On Tuesday, the stock of Deutsche Bank of Germany dropped 4.2 percent. Shares in Barclays of Britain fell 5.9 percent, while those of BNP Paribas of France declined by 5.7 percent.